Tuesday, April 10, 2007

How to "Double Your Money in 5 or 6 Years"

When you see an Advert that proclaims -

"Double Your Money in 5 Years!"

What do you think, a 'Scam', and perhaps "Too Good to be True",
or what?

Well, I too was very 'sceptical' of such claims. However, rather than just 'dismiss' it, I decided to 'investigate' to see if it could be true - I'm glad I did, because it's not a scam!

I actually found a foreigner, who had put money into such "Double your Money in 5 Years" Time Deposits, here in the Philippines. Whilst it was High Risk potentially, he did receive, Interest Payments (totalling his Deposit), together with the returned Deposit, after 60 months.

Seems some Banks only offer, "Double your Money in 6 Years", now, but this is still a lot better than most Commercial Banks were/are offering for Peso Time Deposits.

One Bank, offering such a 'product' is http://www.firstcountryfinancial.com/labels/Deposits.html

Rates:12% for P3,000,000-P4,999,999.

Bankers Club Pensionado
Yes, you can retire rich!This is a long term special savings account that will double your money in 6 years, and lets you immediately have your interest income credited to your regular savings or checking account with First Country Bank every month, tax free!
Live off the interest on your investment and enjoy your dream retirement.

For:
High net-worth individuals who want a high return on their deposit, but want to enjoy regular monthly interest income.

Benefits:

  • Doubles investment in just 6 years
  • Credits interest every month
  • Exempt from withholding tax
  • Loan against deposit

Rate:12% compounded (or 16% straight)

This is not the only such 'Rural' Bank offering such good Interest Rates
I also found this one from a 'Google' search:-
http://www.carloanphils.com/contact.html

Well that Website, also promotes Auto Loans on vehicles up to 15 Years old, with an Interest Rate for such Loans as low as 7%!

Do you think 7% pa Interest on a Loan where they offer up to 50% of a vehicles value as 'collateral' for such loan, is good rate?

Well perhaps 7%pa, seems a little 'high', to those in Western countries right now?

Well, not here in the Philippines - the cost of 'borrowing' cash is HIGH.

Pawn Shops/Money Lenders, will ask 3% per month (36%pa - or higher, as APR) typically!
That is for 'secured' loans' with collateral.


I was very happy to have discovered some Rural Banks, here in Cebu (and other parts of the Philippines), that pay 20%pa, with Interest credited monthly (tax free).

This is still the 'Double your Money' in 5 Years'.

In fact you can earn an even Higher Rate, than this?
If you invest the monthly Interest payments into other, shorter term Peso Time Deposits*, and then 'Roll these over', along with subsequent interest payments. Once you deposit has accumulated sufficient, you can move up to next 'tier', and for longer period, whilst other deposits build to similar levels.

Compound Interest on those Interest Payments

*Katuparan Special Savings
http://www.firstcountryfinancial.com/labels/Deposits.html

Rates:

-- RANGE --------------- 30 Days --60 Days -- 90 Days -- 180 Days
P5,000-P19,999 ---------------5% -- 5.25% ------5.50% -----5.75%
P20,000-P49,999 -----------5.75% ----- 6% ------6.25% ---- 6.50%
P50,000-P99,999 ---------- 6.75% ----- 7% ------7.25% -----7.50%
P100,000-P499,999 ---------7.75% ----- 8% ------8.25% -----8.50%
P500,000-P999,999 ---------8.75% ----- 9% ------9.25% -----9.50%
P1,000,000-P2,999,999 -----9.75% ---- 10% -----10.25% ----10.50%
P3,000,000-P4,999,999 ----10.75% ---- 11% -----11.25% ----11.50%
P5,000,000-Up ------------- (N E G O T I A B L E)

I just used FirstCountryFinancial.com as an illustration, as they have Rates that can be checked on their website.

For example, say you were to place a 5 Year Time Deposit of say Php240K with a Rural Bank offering 20%pa.
(Not advisable to place single deposit, in any 1 Bank, higher than Php250K. - limit for the PDIC insured Deposit.
See
http://www.pdic.gov.ph/faq.asp for more info).


This would earn you Php4,000 a month, tax free interest, each month, for 60 months.

You would need 2 months Interest, to start placing Deposit in First Country Rural Bank, as an example.
After 5 months, you would have 20K, plus 4 months, accumulated, compounded interest, and able to earn higher interest at next 'Tier'.

At the end of 24 months you could have accumulated Php92,995.80 in Interest in this way, using those Rates.
At the end of 60 months you could have accumulated Php289,536.65 in Interest (120.64%, or 24%pa straight).

This, together with your Deposit of Php240K, gives a Total = Php529,536.65 (220.64%).

More than Double Your Money in 5 Years!

That was just a worked example, to show the effect of Compound Interest, applied to a Time Deposit offering 20%pa.

The Rural Banks offering 5 Year Time Deposits of 20%pa, may well have 30/60/90 Day Time Deposits etc, better than those of First Country Rural Bank, perhaps?
(But they don't have Websites 'advertising' such Rates).

Anyone wanting to check if a Rural Banks is 'genuine', can check /search the following websites:-

Many Rural Banks that were offering High Interest Rates of 12%pa and above, have been closed down by the BSP.

Whilst these Deposits are now insured to Php500,000.00 wef 1st June, it should be noted that above Php250,000.00 is to be collected from the Philippine Government up to 1st June 2011.

Considering how much trouble and time it has taken the PDIC, to service Claims in these 12 x Legacy Group Banks insured to Php250,000 only, that were declared Closed by Monetary Board Resolutions in December 2008, one should consider Deposits over Php250,000 very carefully. There is to be new Government elected in May 2010 and the PDIC having to get the funds above Php250,000 from them, might cause further delays in such Claims payments perhaps?

Also note any Bank offering more than say 12%pa, should be viewed with some caution?

Why - because the BSP / PDIC have stated that any Bank offering Interest Rates > 50% more than comparable peer Banks, might be guilty of Unsafe and Unsound Banking Practices?

So if in the unlikely event any Bank is offering >12%pa, ask them to give a statement in writing that they have not received any WARNINGS from the BSP or PDIC or proof that such high Interest Rates are sustainable.

Double check with the Consumer Affairs Department of the BSP to determine if any such WARNING has been issued to such Bank, and if so if any 'Cease and Desit Order (CDO)' has also been issued. If not, then such Products should still be insured with the PDIC, but they have not made it clear that any such CDO, is only applicable to Deposits placed after such Order is issued, and would not be insured by the PDIC from that point onwards. i.e. Deposits already placed prior to such CDO, will continue to be insured until Maturity. I would want this in writing from BSP and PDIC Depsoitors Assistance Bureau before placing funds into any Deposit offering 12%pa or higher.


Why 12%pa or higher, Interest Rates, should be viewed with caution?

I managed to secure 12%pa Gross (6.4%pa after deduction of 20% Withholding Tax on 1 Year Peso Time Deposit, paid Quarterly) with GreenBank

Any Bank offering higher than 12%pa, might be considered as potentially practicing unsafe and unsound banking practices the BSP and PDIC have stated, but this is not the only 'indicator' they will look at.

Consider also that the Maximum Insured Deposit is now Php500,000 - double that of Php250,000 effective up to 1st June 2009. The PDIC has still not serviced all claims (some not received any payments yet some 15 months since closure of those 12 x Legacy group Banks in December 2008). With the higher amount, and anything above Php250,000 to be paid by the Government (of which, a new Government to be elected from May 2010) until 1st June 2011, who knows how long it will take the PDIC to process claims and make payments, having collected the balance > Php250,000 off the Government, for any Bank offering High Interest rates for Php500,000 Deposits, that then gets declared CLOSED by the Monetary Board?

If I come across more solid Banks like GreenBank, I will let you know, or read Pinnoy Money Talk Forum to discover such, but I suggest you check with the Consumer Affairs Department of the BSP to ask if any such WARNINGS or CDO been issued to said Bank, before placing funds in such.

Perhaps such inquiry might cause an investigation into 'Unsafe or Unsound Banking Practices' but better that then find such Deposits might be declared 'Uninsured' by the PDIC if such Warnings and then CDO has been ignored by the respective Bank? Even if such products issued prior to a CDO, are still insured by the PDIC, and the Bank then gets issued a Closure Resolution byt the Monetary Board, how long will it take the PDIC to pay up. No good getting say 16%pa, for just 6 months, then Banks is closed, it taking more than 18 months later to get ones Insured Deposit back! That would only be 4%pa over 2 years!

3 comments:

boostah said...

You really did your research very well, well done, this is phenominal information, i cant believe my eyes and im starting to have all kinds of Ideas!

Dave Starr said...

Hello, David,
Nice to run into you again after all these years. I've heard those words "scam' and "too much risk" a lot myself, but after spending a couple hours looking quite throughly at some of your posts here I have to say I see no indications of "scam' at all.

As far as high risk, the PDIC removes virtually all the risk ... and people have to realize the age-old truth as well ... rates of return are always driven by risk. If one wants to they can invest in CD's from well-know US banks (as just one example). The rates will be under 5% per year and the "risk'" will indeed be tiny. However, the tax bite will eat up the entire gain not to mention the current fall of the dollar versus the peso ... so virtually zero risk traded off for a 100% certainty that you'll lose money in the end... doesn't sound like much of a deal to me. I'm not familiar with time deposit products of UK banks, but I've never heard they are much better than the US equivalents.

One of the interesting things when you chart out the examples like this is, someone can work the same scheme in reverse if they have very little capital to start with. Just look at what happens if you take 5,000 PhP per month and start with the consequently lower rates, but just keep re-investing until there's enough to buy progressively "bigger" products ... it takes longer, but it still mounts up quickly ... and if someone can't put 5.000 a month into a savings plan they really need to rearrange their budget.

David Whittall said...

For those who did not know, the BSP in the Philippines issued a series of Resolutions in December 2008, ordering the CLOSURE of these 12 x Rural Banks of the Legacy Financial Group.

As you may be aware, myself, my wife and her daughter placed Deposits in some 5 of the LFG Banks, so we lost considerable income from the Interest on such Deposits.

This loss of income came at a time when Mama had a 2nd Stroke, but we saved her life, but used up all our Savings. Mama died on February 27th 2009 and we are still paying off a Php600,000 Bill for Hospital and Doctors Fees.

Ones Bank Deposits are supposed to be covered by the PDIC but they took 3 months (or more) to announce Claims Acceptance instead of the '9 x working days, or less' that they used to boast about.

Here we are 15 months later since the Closure of these Banks, and some Claims remain unpaid.

It's a bit like the "Boy who cried WOLF!"?

Jose Nograles, President of the PDIC, states "All Claims will be paid by xx/xx/xxxx", That date arrives, and still not paid. So who says it again with a new Date for all Claims to be paid by. That date arrives and still many Claims outstanding. We get to 2010 and he announces "All Claims to be paid by Q1, 2010".

Well it is now the end of Q1 2010 and some Claimants have not received a single payment yet!